65 FR 39125 June 23, 2000 A-485-805 Investigation Public Document GRP II Off. 5: MZ MEMORANDUM DATE: June 19, 2000 TO: Richard W. Moreland Acting Assistant Secretary for Import Administration FROM: Holly A. Kuga Acting Deputy Assistant Secretary, Group II Import Administration SUBJECT: Decision Memorandum for the Final Determination in the Antidumping Duty Investigation of Certain Small Diameter Carbon and Alloy Seamless Standard, Line and Pressure Pipe from Romania Summary We have analyzed the comments in the case and rebuttal briefs submitted by interested parties in the antidumping duty investigation of certain small diameter carbon and alloy seamless standard, line and pressure pipe from Romania. As a result of our analysis, we have made changes in the margin calculations. We recommend that you approve the positions we have developed in the Discussion of Issues section of this memorandum. Below is the complete list of the issues in this investigation for which we received comments from the parties. List of Comments in the Issues and Decision Memorandum GENERAL ISSUES Comment 1: Surrogate Country Selection and Sources of Surrogate Values Comment 2: Selling, General, and Administrative Expenses, Profit and Overhead Calculation: A. Using PT Krakatau's Financial Statements B. Foreign Exchange Gains/Losses and Imported Raw Materials C. Exchange Losses on Accounts Payable D. The Inclusion of Employee Wages and Benefits in Overhead E. The Inclusion of Freight and Warehouse Expenses in SG&A F. Profit Ratio Comment 3: Market-Oriented Industry Issue Comment 4: Assignment of Dumping Margins to the Producers Instead of the Trading Companies Comment 5: Surrogate Value for Billets Comment 6: Surrogate Value for Labor Comment 7: Surrogate Value for Electricity Comment 8: Surrogate Value for Rail Freight II. ISSUES SPECIFIC TO S.C. SILCOTUB S.A. Comment 9: Scrap Factor Calculation Comment 10: Lacquer Factor Calculation III. ISSUE SPECIFIC TO S.C. PETROTUB S.A. Comment 11: Electricity and Gas Factors Calculation BACKGROUND On February 4, 2000, the Department of Commerce (the Department) published the preliminary determination in the antidumping duty investigation of certain small diameter carbon and alloy seamless standard, line and pressure pipe from Romania. The period of investigation (POI) is October 1, 1998, through March 31, 1999. We invited parties to comment on the preliminary determination. At the request of the petitioners (1) and the respondents, (2) we held a public hearing for this investigation on April 18, 2000. SCOPE OF INVESTIGATION For purposes of this investigation, the products covered are seamless carbon and alloy (other than stainless) steel standard, line, and pressure pipes and redraw hollows produced, or equivalent, to the ASTM A-53, ASTM A- 106, ASTM A-333, ASTM A-334, ASTM A-335, ASTM A-589, ASTM A-795, and the American Petroleum Institute (API) 5L specifications and meeting the physical parameters described below, regardless of application. The scope of this investigation also includes all products used in standard, line, or pressure pipe applications and meeting the physical parameters described below, regardless of specification. Specifically included within the scope of this investigation are seamless pipes and redraw hollows, less than or equal to 4.5 inches (114.3 mm) in outside diameter, regardless of wall-thickness, manufacturing process (hot finished or cold- drawn), end finish (plain end, beveled end, upset end, threaded, or threaded and coupled), or surface finish. The seamless pipes subject to this investigation are currently classifiable under the subheadings 7304.10.10.20, 7304.10.50.20, 7304.31.30.00, 7304.31.60.50, 7304.39.00.16, 7304.39.00.20, 7304.39.00.24, 7304.39.00.28, 7304.39.00.32, 7304.51.50.05, 7304.51.50.60, 7304.59.60.00, 7304.59.80.10, 7304.59.80.15, 7304.59.80.20, and 7304.59.80.25 of the Harmonized Tariffs Schedule of the United States (HTSUS). Specifications, Characteristics, and Uses: Seamless pressure pipes are intended for the conveyance of water, steam, petrochemicals, chemicals, oil products, natural gas and other liquids and gasses in industrial piping systems. They may carry these substances at elevated pressures and temperatures and may be subject to the application of external heat. Seamless carbon steel pressure pipe meeting the ASTM A-106 standard may be used in temperatures of up to 1000 degrees Fahrenheit, at various ASME code stress levels. Alloy pipes made to ASTM A-335 standard must be used if temperatures and stress levels exceed those allowed for ASTM A-106. Seamless pressure pipes sold in the United States are commonly produced to the ASTM A-106 standard. Seamless standard pipes are most commonly produced to the ASTM A-53 specification and generally are not intended for high temperature service. They are intended for the low temperature and pressure conveyance of water, steam, natural gas, air and other liquids and gasses in plumbing and heating systems, air conditioning units, automatic sprinkler systems, and other related uses. Standard pipes (depending on type and code) may carry liquids at elevated temperatures but must not exceed relevant ASME code requirements. If exceptionally low temperature uses or conditions are anticipated, standard pipe may be manufactured to ASTM A-333 or ASTM A-334 specifications. Seamless line pipes are intended for the conveyance of oil and natural gas or other fluids in pipe lines. Seamless line pipes are produced to the API 5L specification. Seamless water well pipe (ASTM A-589) and seamless galvanized pipe for fire protection uses (ASTM A-795) are used for the conveyance of water. Seamless pipes are commonly produced and certified to meet ASTM A-106, ASTM A-53, API 5L-B, and API 5L-X42 specifications. To avoid maintaining separate production runs and separate inventories, manufacturers typically triple- or quadruple-certify the pipes by meeting the metallurgical requirements and performing the required tests pursuant to the respective specifications. Since distributors sell the vast majority of this product, they can thereby maintain a single inventory to service all customers. The primary application of ASTM A-106 pressure pipes and triple- or quadruple-certified pipes is in pressure piping systems by refineries, petrochemical plants, and chemical plants. Other applications are in power generation plants (electrical-fossil fuel or nuclear), and in some oil field uses (on shore and off shore) such as for separator lines, gathering lines and metering runs. A minor application of this product is for use as oil and gas distribution lines for commercial applications. These applications constitute the majority of the market for the subject seamless pipes. However, ASTM A-106 pipes may be used in some boiler applications. Redraw hollows are any unfinished pipe or "hollow profiles" of carbon or alloy steel transformed by hot rolling or cold drawing/hydrostatic testing or other methods to enable the material to be sold under ASTM A-53, ASTM A- 106, ASTM A-333, ASTM A-334, ASTM A-335, ASTM A-589, ASTM A-795, and API 5L specifications. The scope of this investigation includes all seamless pipe meeting the physical parameters described above and produced to one of the specifications listed above, regardless of application, with the exception of the specific exclusions discussed below, and whether or not also certified to a non-covered specification. Standard, line, and pressure applications and the above-listed specifications are defining characteristics of the scope of this investigation. Therefore, seamless pipes meeting the physical description above, but not produced to the ASTM A-53, ASTM A-106, ASTM A-333, ASTM A-334, ASTM A-335, ASTM A-589, ASTM A- 795, and API 5L specifications shall be covered if used in a standard, line, or pressure application, with the exception of the specific exclusions discussed below. For example, there are certain other ASTM specifications of pipe which, because of overlapping characteristics, could potentially be used in ASTM A-106 applications. These specifications generally include ASTM A-161, ASTM A-192, ASTM A-210, ASTM A-252, ASTM A-501, ASTM A-523, ASTM A-524, and ASTM A-618. When such pipes are used in a standard, line, or pressure pipe application, with the exception of the specific exclusions discussed below, such products are covered by the scope of this investigation. Specifically excluded from the scope of this investigation are boiler tubing and mechanical tubing, if such products are not produced to ASTM A- 53, ASTM A-106, ASTM A-333, ASTM A-334, ASTM A-335, ASTM A-589, ASTM A- 795, and API 5L specifications and are not used in standard, line, or pressure pipe applications. In addition, finished and unfinished OCTG are excluded from the scope of this investigation, if covered by the scope of another antidumping duty order from the same country. If not covered by such an OCTG order, finished and unfinished OCTG are included in this scope when used in standard, line or pressure applications. The scope of this investigation has been amended since the preliminary determination with respect to the excluded products listed above. The Department will not instruct Customs to require end-use certification until such time as the petitioners or other interested parties provide to the Department a reasonable basis to believe or suspect that the products are being used in a covered application. If such information is provided, we will require end-use certification only for the product(s) (or specification(s)) for which evidence is provided that such products are being used in covered applications as described above. For example, if, based on evidence provided by the petitioners, the Department finds a reasonable basis to believe or suspect that seamless pipe produced to the A-161 specification is being used in a standard, line or pressure application, we will require end-use certifications for imports of that specification. Normally we will require only the importer of record to certify to the end use of the imported merchandise. If it later proves necessary for adequate implementation, we may also require producers who export such products to the United States to provide such certification on invoices accompanying shipments to the United States. Although the HTSUS subheadings are provided for convenience and customs purposes, our written description of the merchandise subject to this scope is dispositive. DISCUSSION OF ISSUES I. GENERAL ISSUES Comment 1: Surrogate Country Selection and Sources of Surrogate Values The respondents argue that the Department should use Egypt, instead of Indonesia, as the surrogate country for Romania since Egypt, compared to Indonesia, is at a level of economic development more comparable to that of Romania and is a significant producer of the subject merchandise. The respondents maintain that the Department, in its preliminary determination, used primarily surrogate values from Indonesia even though Indonesia was not on the original list of countries for consideration as possible surrogates for Romania. According to the respondents, because Indonesia was not on the Department's original list of surrogate countries, Indonesian values should only be used when there are no data available from Egypt. The petitioners request that the Department continue to use Indonesia as the primary surrogate for Romania since Indonesia and Egypt are both comparable to Romania in terms of level of economic development and, in its preliminary determination, the Department found the surrogate value data from Indonesia to be more complete and of a higher quality than Egypt's factors information. According to the petitioners, there is insufficient information in the one-page income statement of Alexandria National Iron and Steel Co. (Alexandria National), placed on the record by the respondents, to perform a complete analysis and calculation of the financial ratios. To demonstrate that the Indonesian surrogate value data are of higher quality than the Egyptian surrogate value data, the petitioners also argue that the Indonesian import data reflect the value of round billet, the major material input used in the production of seamless pipe, because Indonesia has two seamless pipe mills. The petitioners also speculate that since Egypt, in contrast to Indonesia, does not produce seamless pipe, it does not import round billets. For the above reasons, the petitioners request that the Department continue to use Indonesia for the surrogate values for purposes of the final determination. DOC Position: In determining the most appropriate surrogate country or countries from which to value factors of production, the Department considers - - "to the extent possible" - - countries which are 1) at a comparable level of economic development to the non-market economy country and 2) significant producers of merchandise comparable to the subject merchandise. (3) For purposes of the final determination, we find that Indonesia remains the most appropriate surrogate country for Romania. As stated in our preliminary determination, we used Indonesia as the surrogate country for Romania because it provided surrogate value information for virtually all factors of production and is a major producer of products comparable to the subject merchandise. For a complete analysis of the selection of the surrogate country, see the memorandum for Selection of the Surrogate Country in the Antidumping Duty Investigation of Certain Small Diameter Carbon and Alloy Seamless Standard, Line and Pressure Pipe from Romania, dated January 28, 2000, on file in the Central Records Unit (CRU). We disagree with the respondents' argument that Egypt should be used as the surrogate country for Romania. While we agree that Egypt provides surrogate value data for certain factors of production and, compared to Indonesia, is closer in terms of the Gross National Product (GNP) per- capita to Romania, we have not been able to obtain reliable financial statements from Egypt to calculate the financial ratios of selling, general, and administrative expenses (SG&A), overhead, and profit. We agree with the petitioners that the one-page Egyptian income statement submitted on the record by the respondents is incomplete and cannot be used to calculate the financial ratios. On the other hand, we have on the record complete financial statements from Indonesia allowing us to calculate the above-referenced financial ratios. For further details regarding the financial ratio calculation, see the relevant section in this memorandum below. Moreover, our preference is to value all factors of production in a single surrogate country, when possible. See section 351.408(c)(2) of the Department's regulations (". . . the Secretary normally will value all factors in a single surrogate country"). Because Indonesia provides surrogate value information for virtually all factors of production, we have determined that Indonesia is the appropriate surrogate country for Romania and calculated the normal value, when possible, based on Indonesian surrogate values. Comment 2: SG&A, Profit and Overhead Calculation Using PT Krakatau's Financial Statements: Several issues were raised with respect to the manner in which SG&A, profit and overhead ratios were calculated using the three Indonesian financial statements of P.T. Jakarta Kyoei (Kyoei), P.T. Jaya Pari Steel Corporation Ltd. (Jaya Pari), and P.T. Krakatau. The respondents objected to the following: our treatment of the foreign exchange losses in the calculation of SG&A; the inclusion of freight and warehouse expenses in SG&A; double-counting labor in the overhead calculation; and not including negative profit in the profit calculation. Although the petitioners agree with the Department's overall calculation of the Indonesian financial ratios, they requested that the Department revise its overhead calculation to include in overhead exchange losses on accounts payable. DOC Position: For the preliminary determination, we used the financial statements of the above-referenced Indonesian steel companies in order to determine the factory overhead, SG&A, and profit rates for the Romanian respondents. Upon further analysis of these financial statements, we find that problems exist with the financial statements of Kyoei and Jaya Pari such that they cannot be used for purposes of the final determination. Instead, for the final determination, we have relied exclusively on the financial statements of P.T. Krakatau. First, Jaya Pari's financial statements do not separately break out energy costs. Thus, we are unable to compute an accurate overhead rate for this company. Second, it is unclear whether the cost of materials, as reported on the financial statements for Kyoei and Jaya Pari, includes amounts for foreign exchange losses. The footnotes to each of these two companies' financial statements indicate that they capitalized foreign exchange losses related to the materials in inventory. While there is still a possibility that these companies included all currently expensed foreign exchange losses in the other income/expense section of the income statement as opposed to the cost of manufacturing (COM), the fact that they capitalized exchange losses to inventory raises some doubt. In the case of PT Krakatau, however, there is no indication that any of its foreign exchange losses are included in inventory or COM. When selecting among potential sources for financial ratios, we prefer, if possible, to use the same source for computing the surrogate factory overhead, SG&A, and profit rates. Accordingly, as the financial statements for PT Krakatau are the only ones on the record with usable surrogate information for all three rates, we have relied on PT Krakatau's financial statements exclusively in order to compute the surrogate values for factory overhead, SG&A, and profit. Thus, in addressing interested party comments regarding the computation of these three financial ratios, we have focused on those related only to PT Krakatau. Foreign Exchange Gains/Losses and Imported Raw Materials The respondents argue that the Department's inclusion of foreign exchange losses as part of SG&A is contrary to law and the Department's practice. The respondents contend that it is the Department's practice that foreign exchange gains and losses on the purchase of raw materials used in the production of the subject merchandise be related directly to the acquisition of input materials and, therefore, should be included in the COM. (4) Specifically, the respondents maintain that because the Indonesian steel industry imported raw materials for the production of steel during the Asian monetary crisis in 1997, it is reasonable to assume that the majority, if not all, of the net foreign exchange losses relate to the importation of raw materials. The respondents further argue that while their position supports the inclusion of foreign exchange losses in the COM, if the Department disagrees, those losses should still be excluded from SG&A. The respondents contend that because PT Krakatau is involved in diverse activities, and the evidence on the record is unclear as to which activities the losses relate, attributing all of the net foreign exchange losses as part of SG&A is inappropriate. According to the respondents, the inclusion of foreign exchange losses artificially inflates the dumping margin, in violation of the mandate of the statute to calculate accurate margins. The respondents argue that failure to exclude foreign exchange losses from the SG&A calculation would in effect apply an adverse inference to the respondents, contrary to the evidence on the record and the law. For these reasons, the respondents request that the Department exclude any foreign exchange losses not included in the COM from its calculation of SG&A. In the alternative, the respondents request that the Department amortize any remaining portion of losses the Department includes in the calculation of SG&A. According to the respondents, if the Department determines that the evidence on the record is insufficient to amortize the losses, the losses must be excluded from SG&A. In support of their argument, the respondents reference the Department's practice of recognizing only the current portion of foreign currency losses associated with the debt. The respondents further argue that the extraordinary foreign exchange losses reflected in the Indonesian financial statements qualify as aberrant data that should be excluded. The respondents state that during the fiscal year 1997, the Bank Indonesia middle rates of exchange for rupiahs and U.S. dollars increased by almost 50 percent. According to the respondents, this extreme currency devaluation resulted in significant net foreign exchange losses which, when included in the SG&A calculation, result in a distortion in the calculation of SG&A, as evidenced by very high SG&A ratios. Consequently, the respondents request that the Department, pursuant to its policy to exclude aberrant data and use good data, exclude the net foreign exchange losses from its calculation of SG&A. Additionally, the respondents argue that, without knowing with absolute certainty the source of the net foreign exchange losses (other than those attributable to COM because they are related to the importation of raw materials), the Department's inclusion of any portion of the net foreign exchange losses in SG&A unlawfully applies adverse facts available to the respondents. According to the respondents, the facts of this case provide no support for the use of an adverse inference because the respondents have already provided all data requested by the Department, and have cooperated fully with this investigation. Consequently, according to the respondents, the inclusion of the foreign exchange losses in the calculation of SG&A is unsupported by substantial evidence on the record and is not in accordance with law. The petitioners counter the respondents' claim that the foreign exchange losses should be included in the COM, stating that the financial statements for PT Krakatau provide no footnote explaining how the amount of foreign exchange losses was calculated. The petitioners further argue that because PT Krakatau had U.S. dollar-denominated current bank loans in 1997, and because the rupiah depreciated sharply relative to the dollar during the year, such liabilities would have increased in rupiah terms, forcing PT Krakatau to incur substantial foreign exchange losses on the loans. For this reason, the petitioners claim that the foreign exchange losses relate solely to debt. DOC Position: We disagree with the respondents that record evidence supports the proposition that PT Krakatau's net foreign exchange gains and losses resulted solely from imported raw materials. We also disagree with the petitioners that the foreign exchange losses relate solely to debt. As noted by the respondents in their case briefs, foreign currency gains and losses arise as follows: transactions involving foreign currencies are recorded at the rates of exchange prevailing at the time the transactions are made. At the balance sheet date, assets and liabilities denominated in foreign currencies are translated to rupiah based on the prevailing exchange rates at such date. As the rupiah lost value in comparison to the U.S. dollar and most other currencies during the year, we consider it reasonable to assume that the Indonesian company's foreign exchange losses resulted from the foreign-denominated liabilities. As a result, we consider the ratio of each type of foreign-denominated liability to total foreign-denominated liabilities a reasonable means for determining what gave rise to the net foreign exchange losses reported on the company's audited financial statements. As can be seen from PT Krakatau's financial statements at footnote 31, approximately 69 percent of its foreign- denominated liabilities relates to loans while 31 percent relates to operating liabilities (i.e., purchase of inputs). We do note, however, that even if the net foreign exchange losses were related solely to imported raw material purchases, we would still include these net losses in the SG&A rate computation, as discussed below. The respondents assume incorrectly that the Department automatically includes foreign exchange gains and losses on raw materials purchases in the COM for the merchandise under consideration. Often a company incurs foreign exchange gains and losses on raw materials that relate to both subject merchandise and non-subject merchandise. Unless we can specifically identify those gains and losses that relate only to those inputs used to produce the merchandise under consideration, to include the full amount of the net gain or loss in the COM of the merchandise under consideration results in an unreasonable assignment of these amounts. As it is very difficult to specifically match each gain or loss to the exact input used to produce each type of finished product, we frequently include the net foreign exchange gain or loss associated with raw material purchases in the SG&A expense computation allocated over the company-wide cost of sales (see Certain Cut-to-length Steel Plate From Mexico: Final Results of Antidumping Administrative Review, 65 FR 8338 (February 18, 2000), (Comment 5). Alternatively, when we were able to trace the foreign exchange losses to input purchases, we included such losses in the COM (see Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Round Wire from Taiwan, 64 FR 17336 (April 9, 1999), (Comment 4). In the instant case, however, we were not able to specifically identify which finished products' inputs generated the net exchange loss. Since we have no reason to believe that the foreign exchange losses attributable to raw material purchases relate to inputs used to produce one type of finished product versus another, we consider it reasonable to allocate the company-wide net foreign exchange loss over the operations of the company as a whole. We disagree with the respondents that the foreign exchange losses reported in the Indonesian company's financial statements are aberrant, artificial losses, and that the inclusion of these losses is akin to the application of adverse facts available. Specifically, the foreign exchange losses for PT Krakatau are real costs to the company, and are reported in the company's audited financial statements in accordance with Indonesian Generally Accepted Accounting Principles; these losses are a normal part of doing business. Any company, such as PT Krakatau, which engages in international transactions is susceptible to incurring foreign exchange gains or losses. Several factors, such as the significance of assets and liabilities denominated in foreign currencies, the level of transactions with foreign customers and suppliers, the length of time the company takes to satisfy its foreign-denominated liabilities, and the volatility of the company's home currency in relation to that of its trading partners, contribute to the magnitude of these gains and losses. In this case, while the value of the rupiah in relation to the U.S. dollar dropped more significantly this year than in past years, we do not consider this fact alone sufficient grounds to conclude that the foreign exchange gains and losses reported on PT Krakatau's financial statements are aberrant. Our position that foreign exchange losses in Indonesia were not aberrant is consistent with the recent investigation of steel plate from Indonesia (see Notice of Final Determination of Sales at Less Than Fair Value: Certain Cut-to-Length Carbon-Quality Steel Plate Products from Indonesia, 64 FR 73164 (December 29, 1999)). In that case, we included the foreign exchange losses incurred by the respondents even though the rupiah, in relation to the U.S. dollar, dropped in value more significantly than in past years. We also note that the respondents' reference to PT Krakatau's foreign exchange loss amount as a percentage of SG&A, as an indication that the exchange losses are aberrant, is misleading. While the respondents show PT Krakatau's foreign exchange loss as a percentage of SG&A as approximately 37 percent, it is only approximately 4.7 percent of its cost of sales. We also disagree with the respondents that the inclusion of the foreign exchange losses unlawfully applies adverse facts available. These foreign exchange losses are reported on PT Krakatau's financial statements and we can reasonably approximate what generated the losses. Thus, the amounts used reflect PT Krakatau's actual costs, the necessary information for our analysis. Accordingly, the inclusion of these losses does not even amount to use of facts available. Finally, we agree with the respondents that for foreign exchange gains and losses attributable to debt, we should only include gains or losses related to the current portion of the foreign-denominated loans. As such, we have excluded the portion of PT Krakatau's net foreign exchange loss attributable to non-current debt from the SG&A rate computation. In addition, we revised PT Krakatau's profit rate calculation to also exclude the foreign exchange loss related to the non-current portion of the foreign denominated debt (see Notice of Final Determination of Sales at Less Than Fair Value: Hot-Rolled Flat-Rolled Carbon Qaulity Steel Products from the Russian Federation, 64 FR 38626 (July 19, 1999)). Exchange Losses On Accounts Payable The petitioners state that the net foreign exchange losses included in SG&A of PT Krakatau's financial statements relate solely to financial debts, and that any foreign exchange losses related to accounts payable are already included in COM. According to the petitioners, the only way to account for these exchange losses is to create a separate foreign exchange loss on accounts payable ratio that is applied to the per-unit COM. The petitioners further argue that the per-unit COM calculated for the respondents fails to capture any foreign exchange losses on raw material acquisitions resulting from foreign exchange losses occurring when the home market currency depreciates relative to the U.S. dollar between the date the material is purchased and the date of payment. Therefore, the petitioners conclude that any exchange losses incurred by the Indonesian companies on accounts payable (i.e., material purchases) are a good surrogate for the losses incurred by the Romanian producers. DOC Position: We agree with the petitioners that the Indonesian cost of imported materials (as used by the Department to value the raw materials factors of production) does not include a component of foreign exchange losses. Thus, any foreign exchange losses reported on the Indonesian financial statements which may relate to material purchases are not captured by the Indonesian raw material import values used to value the respondents' reported factors of production. Foreign exchange gains and losses on raw material purchases arise as a result of the change in exchange rates from the date imported purchases are received to when payment is made (or the balance sheet date if payment has yet to be made). It does not, however, impact the price charged by the supplier and reflected on the invoice as it enters the country. It is only after payment is made (or the balance sheet date) that the related foreign exchange gain or loss is known. As discussed above, the proper treatment for the foreign exchange losses attributable to raw material purchases in this case is to include it as a component of the SG&A computation. We disagree, however, with the petitioners' assertion that, in the case of PT Krakatau, foreign exchange losses relating to material purchases are in COM versus the "other income/expense" section of PT Krakatau's financial statements. It is clear that foreign exchange gains and losses are included in the other income/expense section of PT Krakatau's financial statements. There is no mention in PT Krakatau's financial statements that there are additional foreign exchange losses incurred by PT Krakatau related to material purchases which are imbedded in either inventory or COM. Absent any evidence to the contrary, we consider it reasonable to assume that the materials costs reported in PT Krakatau's audited financial statements are exclusive of exchange gains and losses. We therefore consider it unnecessary to impute foreign exchange losses in order to adjust the COM as reported on PT Krakatau's financial statements in computing the factory overhead, SG&A, and profit ratios. The Inclusion of Employee Wages and Benefits in Overhead The respondents argue that in calculating the overhead ratio for PT Krakatau, the Department included a line item for "employee wages, salaries, and benefits," which effectively double-counts labor costs. According to the respondents, labor costs had already been accounted for in the direct and indirect labor hours provided in their questionnaire responses. The respondents contend that these labor expenses should be removed from the Department's overhead calculation. Furthermore, the respondents argue that the "professional services" and "exclusion for worn- out inventory" categories do not appear to be related to production and should also be excluded from the surrogate overhead calculation. The petitioners agree that the categories including labor costs should be included in PT Krakatau's COM rather than overhead. However, the petitioners counter that the "exclusion for worn-out inventory" category should be included as an overhead item, as it appears to be related to the production of subject merchandise. Regarding the "professional services" category, the petitioners argue that such a category does not include any type of labor costs but represents overhead or SG&A services such as auditors' fees, and should be included in the calculation of either of these ratios. DOC Position: We agree with both the petitioners and the respondents that the PT Krakatau overhead ratio was improperly calculated for the preliminary determination. As stated by both parties, the inclusion of the line item "employee wages, salaries, and benefits," presented on the financial statements under direct fixed and allocation expenses (as an overhead item), is effectively double-counting labor costs. These labor costs should be included in the variable costs used as the denominator in the calculation of the overhead ratio. However, we disagree with the respondents that the expenses for "professional services" and "exclusion for worn-out inventory" should be excluded from the overhead calculation. These costs are reported in PT Krakatau's audited financial statements as manufacturing expenses for the steel division. As it appears that the inventory adjustment relates to maintenance-type inventory as opposed to raw materials, we consider it appropriate to recognize these costs as a factory overhead expense. In addition, while it may be more common for professional services to be categorized as an SG&A expense item on a company's financial statement, we do not believe that it is unreasonable for professional services to be used in manufacturing. Since PT Krakatau's audited financial statements categorized these costs as part of the COM, and we do not believe professional services to be comparable to the type of labor costs included in the respondents' submitted labor factors, we consider it appropriate to include these costs in the factory overhead computation for PT Krakatau. Thus, for the final determination, we are revising the calculation of the overhead rate to eliminate the double-counting of labor costs, but are continuing to include the costs for "professional services" and "exclusion of worn-out inventory." The Inclusion of Freight and Warehouse Expenses in SG&A The respondents argue that in calculating SG&A expenses, the Department improperly included freight and warehouse expenses in PT Krakatau's SG&A. The respondents contend that such expenses are direct in nature and either were reported (such as freight) or would have been reported had they been incurred by the respondents. The respondents contend that note 34 of PT Krakatau's financial statements include an amount for "sales transportation costs" which should be backed out of the SG&A calculation. The respondents claim that removing transportation charges from the surrogate SG&A calculation is mandatory and is supported by case precedent. (5) The petitioners counter that, should the Department remove the freight and warehousing expenses from the surrogate SG&A expense, the profit amount becomes understated. The petitioners contend that an amount equal to these items should be added to PT Krakatau's profit in calculating a surrogate profit ratio. DOC Position: We agree with the respondents that, because we accounted for freight costs elsewhere in our calculations, freight costs should be backed out of PT Krakatau's SG&A rate computation so as to not double- count these costs. We also agree with the petitioners that we must recalculate the surrogate profit ratio as a result of removing freight expenses from the surrogate SG&A expense rate. However, we disagree with the petitioners that we should add an amount equal to the freight expenses to the numerator in the profit ratio calculation. Since PT Krakatau's sales revenue used to determine the profit includes a portion related to freight services provided, the total fully absorbed cost relating to this sales revenue must include the cost of freight. On the Romanian side, however, freight expense is treated as a sales price adjustment as opposed to being included in the factor of production cost build-up. Thus, since the total cost of production to which the profit rate is applied excludes freight, the denominator in the profit rate calculation must also exclude freight. Profit Ratio The respondents argue that the Department's calculation of profit using only PT Krakatau's financial statements is contrary to law and that a "positive" amount for profit is not required by statute. They object to the Department's reliance in the preliminary determination on Certain Fresh Cut Flowers From Ecuador: Preliminary Results and Partial Rescission of Antidumping Duty Administrative Review, 64 FR 18878 (April 16, 1999) (Flowers from Ecuador) in applying the "profit cap" provision as a means of disregarding the financial statements of the Indonesian surrogate companies (i.e., Kyoei and Jaya Pari) which incurred losses. The petitioners counter that the respondents' argument contradicts the statute, SAA and the Department's established practice of requiring that profit be a positive amount, not a loss or a zero. Specifically, the petitioners cite to Flowers from Ecuador which, in turn, followed the determination in Silicomanganese from Brazil; Final Results of Antidumping Duty Administrative Review, 62 FR 37869, 37877 (July 15, 1997) (Silicomanganese from Brazil) that calculated "a positive amount of profit" by "disregard{ing} financial statements of producers that incurred losses." (6) DOC Position: As indicated above, we found problems with the financial statements of Kyoei and Jaya Pari, and, therefore, relied exclusively on the financial statements of PT Krakatau to calculate SG&A, profit, and overhead for purposes of the final determination. Consequently, this issue pertaining to the profit calculation has been rendered moot. Comment 3: Market-Oriented Industry Issue The respondents argue that the Department's decision to not grant the seamless pipe industry in Romania market-oriented industry (MOI) status was contrary to law, given the numerous documents submitted by respondents in support of the proposition that the Romanian seamless pipe industry was a MOI. The respondents further claim that the Department did not provide the respondents with a supplemental questionnaire on the issue of MOI status nor did the Department verify the factual basis for the MOI claim. The petitioners argue that the Department should not revisit its determination that the Romanian seamless pipe industry is not market-oriented. The petitioners maintain that the Romanian seamless pipe industry failed to prove that it is characterized by private or collective ownership, which by itself is sufficient reason to reject the respondents' request for a MOI treatment. The petitioners further state that there is insufficient information on the record with respect to a significant portion of the seamless pipe industry in Romania for a complete MOI analysis. DOC Position: As stated in the preliminary determination, in order to make an affirmative determination that an industry in a non-market economy country is a MOI, the Department requires information on the entire industry. A MOI claim, and supporting evidence, must cover producers that collectively constitute the industry in question; (7) otherwise, the MOI claim is dismissed. In past cases, the Department has identified three conditions that must be met in order for a MOI to exist. First, there must be virtually no government involvement in setting prices or amounts to be produced. Second, the industry producing the merchandise under review should be characterized by private or collective ownership. Third, market determined prices must be paid for all significant inputs, whether material or non- material, and for all but an insignificant portion of all inputs accounting for the total value of the merchandise. See Chrome- Plated Lug Nuts from the People's Republic of China; Final Results of Administrative Review, 61 FR 58514, 58516 (November 15, 1996) (Lug Nuts). We disagree with the respondents' claim that the Department did not verify the factual basis for the MOI claim. In its preliminary determination, the Department rejected the respondents' MOI claim because the information placed on the record shows that all of the known seamless pipe producers were owned primarily by the government (the State Ownership Fund) during virtually the entire POI, and because the record indicates that there was insufficient coverage of the Romanian seamless pipe industry. See the December 15, 1999, memorandum, Whether the Seamless Pipe Industry in Romania Should Be Treated as a Market-Oriented Industry. Based on this evidence, it was unnecessary to request supplemental information from the respondents through an additional questionnaire. Since the preliminary determination, we received no new information from either S.C. Republica, a non-responding producer of the subject merchandise representing over 20 percent of the seamless pipe industry in Romania, or the Romanian government with respect to the MOI status of the Romanian industry. Moreover, the Department conducted verifications of Silcotub's and Petrotub's respective questionnaire responses, and was able to confirm that these two producers were in fact owned primarily by the Romanian government during virtually the entire POI. See the March 27, 2000, memorandum, Verification of the Questionnaire Responses of S.C. Silcotub, S.A. in Antidumping Duty Investigation of Certain Small Diameter Carbon and Alloy Seamless Standard, Line and Pressure Pipe from Romania, as well as the March 27, 2000, memorandum, Verification of the Questionnaire Responses of S.C. Petrotub, S.A. in Antidumping Duty Investigation of Certain Small Diameter Carbon and Alloy Seamless Standard, Line and Pressure Pipe from Romania. Consequently, we find no new evidence on the record to warrant a change to the Department's position to not grant MOI status to the Romanian seamless pipe Industry for purposes of the final determination. Comment 4: Assignment of Dumping Margins to the Producers Instead of to the Trading Companies The petitioners argue that the Department should assign the dumping margins to the producers of the subject merchandise, Silcotub and Petrotub, instead of to the exporters, Sota and MBI, since the exporters are merely selling agents who do not have the authority to determine the sales price of the subject merchandise. The petitioners refer to statements in the producers' respective responses indicating that the exporters were merely commissioned agents, and that the producers were involved in price negotiations and had the authority to change contractual terms such as quantity and price or terms of delivery. The petitioners further argue that if the Department assigns dumping margins to the exporters, instead of to the producers, the producers of the subject merchandise could shift their U.S. sales to the trading company with the lowest dumping margin in this investigation. The respondents argue that the petitioners' claim is not substantiated by the facts on the record in that it ignores the invoicing process between the producer and the exporter, the exporter and the unaffiliated U.S. customer, and the authority of the exporters to negotiate and sign contracts. The respondents further maintain that the exporters did have the authority to negotiate and sign contracts, and were paid directly by the U.S. customers. Additionally, the respondents argue that if the Department were to ignore the sales between the exporters and the unaffiliated U.S. importers, the Department would then have to base the export price on the trading companies' transactions with the producers, which is inconsistent with the Department's practice of ignoring the transactions between producers and exporters in NME cases. DOC Position: We agree with the respondents that the margins should be assigned to Sota and MBI. First, the transfer between the producer and the exporter is between two companies located in Romania, in terms of physical location, place of incorporation and place of business. As discussed in other NME cases, we will not base export price on internal transactions between two companies located in the NME country. (See, e.g., Notice of Final Determination of Sales at Less Than Fair Value: Creatine Monohydrate From the People's Republic of China, 64 FR 71104, 71109 (December 20, 1999) and Fresh Garlic from the People's Republic of China: Final Results of Antidumping Duty Administrative Review and Partial Termination of Administrative Review, 62 Fed. Reg. 23758, 23759 (May 1, 1997).) Second, the facts of the record show that Sota and MBI are the official exporters of record who enter into contracts with their foreign customers, and who negotiated prices with the U.S. customers, arranged for shipment, issued invoices to, and received payment in U.S. dollars from, the U.S. customers. These facts were confirmed during the Department's verification of the exporters, in the context of the Department's examination of the companies' sales process and sales documentation. See exhibit 3 of the March 27, 2000, memorandum, Verification of the Questionnaire Responses of Sota Communication Company in Antidumping Duty Investigation of Certain Small Diameter Carbon and Alloy Seamless Standard, Line and Pressure Pipe from Romania, as well as exhibit 7 of the March 27, 2000, memorandum, Verification of the Questionnaire Responses of S.C. Petrotub, S.A. in Antidumping Duty Investigation of Certain Small Diameter Carbon and Alloy Seamless Standard, Line and Pressure Pipe from Romania. For the above- referenced reasons, we continue to assign the dumping margins to the exporters, not the producers of the subject merchandise. Comment 5: Surrogate Value for Billets The petitioners argue that the surrogate value for billets should be based on Romanian import data of billets from market-economy countries. The petitioners contend that although a majority of billets imported by Romania was from other non-market economy countries, some billets were imported from market-economy countries and paid for in a market-economy currency. The petitioners note that the statute allows for the Department to value billets at the Romanian import price even if neither respondent actually purchased their billets at that price, as long as the price is an indicator of what a market-economy producer would pay for the inputs. In addition, the petitioners argue that the Department's regulations directs the Department to use the best available information when selecting surrogate values. According to the petitioners, the Romanian import price paid for billets from all market-economy countries is the best available information and should be used in the factors of production valuation. The respondents counter that the statutory provision that the petitioners cite leaves significant room for the Department to decide which information it deems to be "appropriate." The respondents further contend that the information provided in the Romanian import statistics does not meet the Department's regulatory standard for using factors purchased from a market-economy supplier in a market-economy currency. (8) While listed in U.S. dollars, the respondents argue that the Romanian import statistics do not indicate the actual currency used for billet purchases. In addition, the respondents argue that they themselves must make market- economy purchases in order for the Department to use such purchases to value factors of production, citing to the Department's Antidumping Manual and to the various comments received during the codification of 19 CFR 351.408(c)(1). (9) The respondents note that in past cases, when the valuation of a factor of production was based on a purchase from a market- economy country, the purchaser was always the respondent. Finally, the respondents argue that using Romanian import data will result in an inflated and aberrational billet price which exceeds the price of finished pipe. Because of its aberrational nature, the respondents claim that the Department must ignore the data, as stated in the Department's regulations. See Preamble to Antidumping Duties; Countervailing Duties; Final Rule, 62 FR 27296, 27366 (May 19, 1997) (Preamble). DOC Position: Section 351.408(c)(1) of the Department's regulations allows that, "where a factor is purchased from a market-economy supplier and paid for in a market-economy currency," the Department "normally will use the price paid to the market economy supplier." See, e.g., Industrial Nitrocellulose From the People's Republic of China: Final Results of Antidumping Duty Administrative Review, 62 FR 65667, 65670 (December 15, 1997). We determined at verification that neither Petrotub nor Silcotub purchased billet from market-economy suppliers during the POI. Therefore, for the final determination, we have continued to value billets using a surrogate value from a market-economy country. For the reasons stated above, we used Indonesia as our primary surrogate country for purposes of the final determination. Comment 6: Surrogate Value for Labor The respondents argue that the surrogate value for labor is not accurate. They contend that when compared with other potential surrogate countries at similar levels of economic development, including Jamaica and Egypt, the Romanian rate of $1.05 is significantly higher. The respondents request that the labor rate be recalculated. The petitioners counter that the Department was correct in its use of a regression-based labor calculation because it is required to do so by its own regulations. (10) Furthermore, the petitioners contend that the purpose of the regression-based equation is to apply to the NME a representative wage rate which avoids using an uncharacteristically high or low wage rate from one of the many market-economy countries that happens to have the same or a similar per capita GNP. DOC Position: We agree with the petitioners. We valued labor in accordance with section 351.408(c)(3) of the Department's regulations. In addition, the respondents' comparison of the Romanian wage rate to specific potential surrogate countries is what the Department's use of regression-based wage rates was designed to avoid. As stated in the preamble to the Department's regulations, by combining data from more than one country the regression-based approach is more accurate. Furthermore, it is fairer because the valuation of labor will not vary depending on which country the Department selects as the economically comparable surrogate country. See 62 FR at 27367. Comment 7: Surrogate Value for Electricity The petitioners requested that the Department not consider the value for electricity used in the preliminary determination, based on a 1997 figure obtained from the International Energy Agency's (IEA) Energy and Taxes second quarter 1999 publication. The petitioners argue that the IEA value is a subsidized price because PLN (the Indonesian Electric Company) has been determined by the Department in a recent Indonesian countervailing duty case (11) to be a government-controlled company. Instead, the respondents request that the Department use the value for electricity provided in the petition. In support of their argument that the Department reject the IEA surrogate value for electricity, the petitioners cite to the Omnibus Trade and Competitiveness Act of 1988, which states that when selecting surrogate values, "Commerce shall avoid using any prices which it has reason to believe may be dumped or subsidized." (12) Furthermore, the petitioners point out that the IEA value is not contemporaneous with the POI, contrary to the Department's stated preference for using contemporaneous surrogate values. (13) The petitioners contend that the surrogate value for electricity provided in the petition is a better choice because it is not a subsidized price and is contemporaneous with the POI. The respondents argue that the surrogate value for energy provided by the Department should not be rejected because it is from a reputable source with no viable alternative on the record. The respondents state that the cases cited by the petitioners indicate that the Department did not find subsidies of electric prices in the Indonesian steel industry. Furthermore, the respondents contend that government control of electricity is not uncommon even in market economies such as the United States. Finally, the respondents argue that the petitioners' proposed surrogate value is from an obscure newspaper article which cites no sources to support the listed prices. DOC Position: We agree with the respondents. First, in the context of the above-referenced Indonesian countervailing duty case, the Department discussed with officials from PLN the electricity tariff rate schedule in Indonesia, and found that only the first of three planned stages of a tariff increase was actually implemented. Due to the financial crisis and the instability of the rupiah, the subsequent stages were never implemented and there were no refunds. We further found that there were no special rates for particular industries, that all industries are charged on industrial usage categories, and that the electricity discount program is not countervailable. See Final Affirmative Countervailing Duty Determination: Certain Cut-to-Length Carbon-Quality Steel Plate from Indonesia, 64 FR 73155, 73162 (December 29, 1999). Therefore, we find no reason to reject the electricity value used in the preliminary determination. Comment 8: Surrogate Value for Rail Freight The respondents argue that the surrogate value used for rail by the Department in the preliminary determination is outdated and exceptionally high. The respondents note that the Department frequently compares data on the record to determine if it is aberrant and request that the Department use any of the alternative rates provided in the respondents' March 15, 2000 submission. The petitioners counter that the Department frequently uses surrogate values for freight that predate the POI (14) and that the respondents offer no evidence demonstrating that the Indonesian rail rate used in the factors of production calculation is unreliable. With regards to the alternative rates provided by the respondents, the petitioners argue that these rail rates, from Pakistan and Canada, are not useable because neither of these countries is at a comparable level of economic development to that of Romania, and that the Canadian rate is priced on a theoretical rather than on an actual basis. DOC Position: We have not considered the rail rates provided in the respondents' submission because they are from Pakistan and Canada, neither of which was considered as a potential surrogate country because neither is at a comparable level of economic development to that of Romania. Therefore, we find no basis for the respondents' argument that the rail rates obtained from Indonesia are aberrant. II. ISSUES SPECIFIC TO S.C. SILCOTUB S.A. Comment 9: Scrap Factor Calculation The petitioners argue that Silcotub incorrectly calculated non-sellable scrap as a percentage of total scrap. This historical percentage was derived from a ratio of the total non-recoverable (or non-sellable) scrap to total metal consumed over a two-year period encompassing the POI. The petitioners argue that Silcotub erroneously calculated non-recoverable scrap loss as a percentage of total scrap loss rather than total metal consumed, thereby understating the amount of non-sellable scrap and, conversely, overstating the amount of recovered scrap reported by Silcotub. The petitioners contend that when calculating the scrap amount, the historical percentage should be applied to the total billets consumed, not to the total scrap recovered. Silcotub admits to a mistake at verification where it presented the Department with a chart that showed non-recoverable scrap as 2.5 percent of total billets consumed instead of total scrap, as it reported in its response. Silcotub claims that it had intended to show the Department how there had been a sufficient amount of scrap sold over a two-year period so as to demonstrate that the reported scrap amounts reasonably reflected the company's experience. Silcotub states that when it calculates the total theoretical recovered scrap using the methodology in its response, and compares it with the actual recovered scrap, there is a negligible difference, which Silcotub attributes to inventory movement. Silcotub argues further that based on information discussed at verification, the percentage of non-sellable scrap applied to total billet consumption -- as proposed by the petitioners -- would be 1.2 percent of total consumption. DOC Position: In reviewing the documents from verification, we note first that the worksheet showing the percentage of non-sellable scrap at 2.5 percent contained a misplaced decimal point, and that the actual percentage was .0025 percent. That error aside, we agree with the petitioners that the non-sellable scrap should be calculated as a percentage of total metal consumed. Accordingly, for purposes of this final determination, we have recalculated Silcotub's scrap as a percentage of total billet consumption based on verified amounts for the POI (see verification exhibit 14). Comment 10: Lacquer Factor Calculation The petitioners argue that because Silcotub made a significant purchase of lacquer from Germany during the POI, the lacquer value should be based on this purchase from a market-economy country. The petitioners argue that inventory records show that Silcotub used the German-sourced lacquer in its production of seamless pipe during the POI, stating that Silcotub's claim that the German lacquer was used only for testing purposes is not supported by the inventory cards examined by the Department at verification. The petitioners claim that there are significant unexplained discrepancies between the inventory records provided at verification and the chart of material purchases submitted in Silcotub's response, arguing that the quantity of lacquer entered into Silcotub's inventory records is greater than that purchased during the POI. Silcotub counters that during verification, the Department scrutinized this issue and confirmed that Silcotub only used domestic lacquer during the POI on pipes exported to the United States, and that the imported lacquer was used for testing purposes only. Silcotub rebuts the notion of discrepancies in its inventory, explaining that the inventory cards examined during verification specify the names of each supplier. According to Silcotub, the fact that more lacquer may have entered inventory than was purchased, does not mean that the difference was attributable to German lacquer. Finally, Silcotub further argues that, contrary to the petitioners' claim, the quantity of imported lacquer was too insignificant to warrant the Department's use of such a small quantity to value the factor for lacquer. DOC Position: Silcotub was not able to provide evidence at verification to support its claim that the German lacquer was used for testing purposes only. In accordance with section 351.408(c)(1) of the Department's regulations, where a portion of a factor is purchased from a market- economy supplier and the remainder from a non-market economy supplier, the Department will normally value the factor using the price paid to the market-economy supplier. We disagree with Silcotub's assertion that its purchase of German lacquer was insignificant. Based on our evaluation of the quantity purchased and other aspects of the transaction, we have determined that the price paid by Silcotub is a reliable market-economy value for lacquer. (15) Specifically, we have on the record documentation supporting the transaction between Silcotub and the German supplier of lacquer (see, e.g., exhibit 2 of the respondents' January 27, 2000, submission). Therefore, for purposes of the final determination, we have valued Silcotub's lacquer inputs using the price paid for the German- sourced lacquer. ISSUES SPECIFIC TO S.C. PETROTUB S.A. Comment 11: Electricity and Gas Factors Calculation The petitioners allege that the Department should apply adverse facts available to Petrotub's electricity and gas factors of production. The petitioners argue that Petrotub's mill-specific reporting of electricity and gas is distortive because of its imprecise allocation methodology. Petrotub allocated usage rates between its four mills which produce subject merchandise, instead of by a unique product control number (CONNUM) used to identify the specific product characteristics. According to the petitioners, this methodology is distortive because it allows for the same energy allocation to be factored among products whose nominal outside diameter and machine processing time vary significantly. The petitioners argue that Petrotub could have done this allocation on a CONNUM-specific basis because Petrotub maintained detailed production records, and that a submission made by Petrotub showing the processing times of each unique CONNUM by mill could have been used to develop an overall average of metric tons per hour by mill. The petitioners argue that a CONNUM-specific allocation is possible by applying coefficients (the ratio of CONNUM-specific mill time to the mill average) to the mill- average usage. The petitioners acknowledge that it may be rare that a company maintains data in its ordinary course of business that precisely correspond to the CONNUMs the Department identifies for the purpose of calculating dumping margins. Nevertheless, the petitioners argue that the Department has stated that "even if a company does not identify product-specific costs in its normal financial and accounting records, it should be able to make some reasonable allocation of its costs among distinct products through the use of other product and production information." (16) Petrotub maintains that it adequately addressed the Department's allocation request in its response, explaining that its internal accounting records track energy usage only by processing line, as its meters record consumption for the entire processing shop. Petrotub further claims that the processing timetable, which the petitioners contend could be used as the basis for CONNUM-specific reporting, is not a record kept in the ordinary course of business, but was a theoretical calculation prepared in answering the Department's question about processing time. Petrotub argues that the theoretical nature of the processing timetable is not verifiable, and maintains that it followed the Department's precedent and legislative history in reporting factors determined by its normal accounting records. (17) Petrotub explains that the processing timetable does not take into account actual productivity recorded during the POI, work stoppages, or the assortment of pipe produced during a specific period pursuant to customer orders. Furthermore, Petrotub contends that there is no direct correlation between processing time and power consumption in that most of the power is consumed during the hot-rolling process in which only a modest amount of time is required. The finishing process, which is much longer, requires significantly less energy, or at certain stages, no energy consumption. Petrotub stated that it relied upon actual accounting documents in order to report the data in the most precise manner that could be verified, and that it would have been speculative to report CONNUM-specific electricity rates. DOC Position: We found at verification that Petrotub's normal cost accounting records for both electricity and gas record consumption on a mill-specific basis. (See Petrotub verification report exhibits 14 and 15.) Accordingly, we agree with Petrotub's contention that it reported its energy usage in the most precise manner possible to meet the Department's standards for verification. However, we agree with the petitioners that a CONNUM-specific allocation can be performed based on the machine-time submission prepared by Petrotub. Accordingly, we have adopted the methodology suggested by the petitioners, and have allocated energy on a CONNUM-specific basis for purposes of the final determination. We disagree with the petitioners' contention that the Department should employ adverse facts available by applying the highest allocated electricity and gas usage rates to all of the CONNUMs within each of the four variants. Pursuant to section 782(c) of the Act, a respondent has a responsibility not only to notify the Department if it is unable to provide requested information, but also to provide a "full explanation and suggested alternative forms" of information requested by the Department. Petrotub explained in both its section D supplemental questionnaire response and in a January 12, 2000 submission that it could not create a CONNUM-specific allocation which could be verified. As an alternative to a CONNUM-specific allocation, Petrotub offered its mill-specific allocation methodology. Sections 782(e)(2) and (4) direct the Department to accept and analyze information submitted by interested parties if the information can be verified and if the interested party demonstrates that it acted to the best of its ability in meeting the established requirements. We were able to verify Petrotub's energy usage as reported; that is, on a mill-specific basis. As the best approximation of CONNUM-specific energy usage amounts, we have allocated those verified amounts to the specific CONNUMs produced by each of the four mills using the processing timetable prepared by Petrotub. RECOMMENDATION Based on our analysis of the comments received, we recommend adopting all of the above positions and adjusting all related margin calculations accordingly. If these recommendations are accepted, we will publish the final determination in the Federal Register. AGREE ____ DISAGREE ____ ______________________ Richard W. Moreland Acting Assistant Secretary for Import Administration _____________________ (Date) _______________________________________________________________________ footnotes: 1. The petitioners in this investigation are Koppel Steel Corporation, Sharon Tube Company, U.S. Steel Group, Lorain Tubular Co. LLC and Vision Metals, Inc. (Gulf States Tube Division) and the United Steel Workers of America. 2. The respondents in this investigation are Sota Communication Company and Metal Business International S.R.L. and their respective suppliers S.C. Silcotub, S.A. and S.C. Petrotub S.A. 3. See 773(c)(4) of the Tariff Act of 1930, as amended (the Act). 4. Respondents cite to Circular Welded Non-Alloy Steel Pipe and Tube from Mexico: Final Results of Antidumping Duty Administrative Review, 63 FR 37014, 37026 (July 10, 1997) (Comment 31), and Certain Cold-Rolled Carbon Steel Flat Products from Korea: Final Results of Antidumping Duty Administrative Review, 63 FR 780, 783 (January 7, 1998) ( Comment 3). 5. See Tapered Roller Bearings and Parts Thereof, Finished, Unfinished, from the Republic of Romania, 61 FR 51427, 51428 (October 2, 1996). 6. Certain Fresh Cut Flowers From Ecuador: Preliminary Results and Partial Rescission of Antidumping Duty Administrative Review, 64 FR 18878 (April 16, 1999) citing Silicomanganese from Brazil; Final Results of Antidumping Duty Administrative Review, 62 FR 37869, 37877 (July 15, 1997). 7. See, e.g., Freshwater Crawfish Tailmeat from the People's Republic of China, Final Determination of Sales at Less than Fair Value, 62 FR 41347, 41353 (August 1, 1997), where we stated that "we require information on the entire industry, or virtually the entire industry, in order to make an affirmative determination that an industry is market oriented." 8. 19 CFR 351.408(c)(1) 9. 62 FR 27296, 27366 (May 19, 1997) 10. 19 CFR 361.408(c)(3) 11. Final Affirmative Countervailing Duty Determination: Certain Cut-to- Length Carbon-Quality Steel Plate from Indonesia, 64 FR 73155, 73162 (December 29, 1999). 12. Omnibus Trade and Competitiveness Act of 1988, H.R. Conf. Rep. No. 100-576, at 590 (1988). 13. See, e.g., Persulfates from the People's Republic of China: Final Results of Antidumping Duty Administrative Review, 64 Fed. Reg. 69494, 69497 (December 13, 1999). 14. See e.g. Natural Bristle Paintbrushes and Brush Heads from the People's Republic of China, 65 FR 13944, 13947 (March 15, 2000) (preliminary results). 15. The record reflects that Silcotub made at least two significant purchases from the same German lacquer supplier. In addition to the 1997 invoice for German lacquer examined at verification (for purposes of confirming the use of lacquer in production), respondents also submitted an invoice for lacquer purchased from the German supplier during the POI. This invoice was submitted as part of Silcotub's attempt to demonstrate that it was a part of a MOI. 16. Preliminary Determination of Certain Cold-Rolled Flat Cardon Quality Steel Products from Turkey, 65 FR 1127, 1132 (January 7, 2000). 17. See e.g. Notice of Final Determination of Sales at Less Than Fair Value: Certain Preserved Mushrooms From India, 63 FR 72246. 72249 (December 31, 1998) and Statement of Administrative Action, Uruguay Round Table Agreements, H.R. Doc. No. 103-316 at 834 (1994).